5 Key Capabilities Critical For Success in Banking

In a banking world where new customers are increasingly hard to come by, most banks are missing prime opportunities to deepen their existing customer relationships and are ceding new product sales to competitors. Key findings from a recent Bain & Co. report that highlight the calculus of lost revenue include:

Less than one percent of those surveyed were new to banking in the developed world (2.7 percent in the developing world), with another 2.5 percent switching from their primary bank (3.2 percent in the developing world);

Roughly half of banking customers in developed countries and 84 percent in the developing world purchased a new bank product over the past year;

Customers purchased one-third of those products, on average, from a bank other than the customer’s primary bank.

While many factors play a role in the new product purchase decision, e.g. level of competition in a local market, Bain finds that two factors stand out in swaying customers to buy: the customer’s loyalty to their primary bank and the bank’s ability to actively sell to its customers. According to the report, a bank’s relative customer loyalty measure explains roughly half of the variation in its relative win rate, and it additionally finds that approximately one-third of banking products in the U.S. are sold, not bought. That is, customers did not plan to buy a particular product, but they received an offer and then decided to purchase it.

According to the report, the unbundling of financial products has spread through some countries faster than others. In Hong Kong, a highly competitive market, three-quarters of bank customers purchased a new product over the past year, though only slightly more than half did so through their primary bank. On the other end of the competition spectrum is Denmark, where 38 percent of customers purchased a new bank product, with 81 percent staying with their primary bank.

Bain recommends a winning model of “loyalty plus five capabilities” to spur existing customers to purchase more from their existing bank, attract new customers and reduce costs without damaging customer relationships. The report highlights how loyalty plays a key role in increasing product uptake in each of the 27 countries examined. In addition, it reveals five key capabilities that are critical to success:

1.

Decide where you must win and where you’re willing to lose. Regardless of how marketing segmentation is conducted, banks that cater to the average, cater to no one.

2.

Design products that “pop.” Though retail bank product features can be copied quickly, banks must keep pace with the latest benefits that customers value.

3.

Accelerate the digital transformation. Mobile banking adoption varies widely across the 27 countries, and generally varies widely by bank within countries. Examples include: USAA is the clear leader in the U.S.; Citibank in Singapore and India; First Direct in the U.K., and Comdirect in Germany. Mobile also delivers a loyalty “halo effect” according to the report—frequent mobile banking users in all countries give much higher loyalty scores than non-users.

4.

Loyalty gives you the right to win more business, but you do have to ask for the sale. In every bank and in every country which Bain analyzed, “promoters” bought more products with their primary bank than detractors.

5.

Build branding that delivers more trust, less buzz. Credibility comes by telling the story of what a bank has to offer, not what it aspires to be.

The report reveals that few large incumbent banks have made meaningful progress on more than one of the five elements. Bain identifies JPMorgan Chase in the U.S. as an exception. Chase posted the biggest loyalty gains in 2013 among the national banks, as measured by Bain, moving from the third quartile to the second quartile and opening a lead over other national banks. That’s due to such factors as select investments in mobile technology, a concerted effort to improve the customer experience and effective marketing to tell people how the bank can simplify their financial lives. Those factors combined to help Chase perform well above average in winning new relationships and cross-selling to existing customers.

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